Santa delivered a lump of coal to the markets on Tuesday in
the form of the Durable Goods Orders. He was not alone as the
North Korean grinch helped steal Christmas spirit as well.
Despite the negative news the Dow managed to close right on
support one more time.

Dow Chart - Daily

Nasdaq Chart - Daily

The biggest hurdle for the markets at the open was a huge
drop in Durable Goods by -1.4%. Analysts had been expecting
a +0.5% gain. New orders fell by -1.3%. This wiped out almost
the entire increase for October and prompted worries that the
weak recovery bounce was failing. Orders for computers fell
by -3.7% which calls into question any future semiconductor
sales numbers. Despite this very negative economic news the
Dow managed to rebound off the opening lows and was showing
some growing strength until the grinch showed up.

Even weak retail sales numbers, which showed only +0.1% growth
for the week failed to make a significant impact on traders.
Most have been hearing the bad news about the holiday sales
for weeks now and the bad news should already be priced into
the market. However, the news is going from bad to worse. The
analyst community is now beginning to claim that this is the
worst year for retailers since 1991. Profits are expected to
be dismal and all eyes will be on next weeks reports to see
if the last minute shoppers helped pull the sector back from
the brink.

Adding to the negativity was the Monthly Mass Layoff report
which showed an increase to -240,028 jobs lost in November
from -171,088 lost in October. There were 2,150 mass layoffs
announced in November, which was significantly above the
1,497 in October. The continuing rise in the rate of
unemployment and the drop in durable goods bodes ill for
the 4Q GDP and any early recovery in 2003.

One additional indicator of overall weakness is a rash of
earnings warnings from video game manufacturers. This sector
is typically the last to be hit since teenage boys are the
predominate buyers and are relatively loose with their money.
The lack of sales across this sector should have the same
impact as the earnings warnings from Lance snacks. The snack
giant who depends on vending machines for a large majority
of their sales warned that they would miss 4Q earnings a
couple weeks ago. These extreme low-level indications of
weakness are even more troubling when added to unemployment
and the larger trends.

The final straw for the markets was the arrival of the grinch
in the form of North Korea, which warned on Friday of an
"uncontrollable catastrophe" if Washington failed to back
off the current hostile policy towards them. They said the
confrontation between the US and NK was escalating into an
extremely dangerous phase. NK has intercontinental missiles
and scientists have said they could have a nuclear bomb ready
for delivery in as little as three months. It appears NK is
taking advantage of the worlds distraction with Iraq and using
the opportunity to engage in some brinkmanship in an effort
to improve their global stature. Rumsfield raised the ante
on Tuesday by saying the US could fight two wars at once if
pressed and could win them both. The implied threat was
directed at NK and was warning them not to pull on Superman's
cape. He said they could swiftly defeat NK if pressed into
a second conflict. This may be wishful thinking as NK is not
as weak as Iraq.

The lack of positive movement in the markets during the holiday
week are distressing for the bulls. This typically bullish
period is slowly sinking in the quicksand of economic weakness
and global events. If traders cannot pull a rabbit out of the
hat on Thursday the outlook for an end of year rally will grow
noticeably dimmer. The normal influx of end of year cash may
be derailed into money markets instead of stocks. The markets
are poised to close with losses for the third consecutive year,
which has not happened since the depression. The Dow closed
right on the top of current support at 8450. With only a 150
point cushion between today's close and disaster (a drop under
8300) the stage is set for the end of the year. If the bulls
don't show up on schedule on Thursday we could easily see a
serious trend change.

I would like to wish all our readers a very happy holiday.
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